Buying From the Bank

I didn’t set out to buy a house in foreclosure. After moving to Providence last year, I was simply looking for a home. But within a short time, I found myself in negotiations with a bank, not a homeowner. It wasn’t a difficult process, thanks in large part to a great realtor, although it was a long one—three months passed between the day I made an offer and the first night I spent there with my family.

Those months were spent staying in friends’ guest rooms, hunting for discount furniture and patting myself on the back. Buying a foreclosed home carries a certain cachet, you see. I’d tell people and they’d look at me as if I was more astute than they’d first assumed, possibly even some sort of real estate shark.

Of course I’m anything but. I completely failed to time the market; it’s continued to sink since I closed last summer. While my area has proven slightly more resistant to plummeting prices than some other parts of the state, there’s a chance I, like many thousands of others, will be underwater by the end of the year. I committed several real estate faux pas, such as buying close to busy businesses with late hours, and buying a single-family surrounded by multis, instead of the other way around. I looked at only a few houses, and failed to drive as hard a bargain as I should have. I wanted it and wanted it right away, which isn’t the way to keep a cool business head.

And I can say that even the place’s failings have had advantages, for me at least. The owner of one business across the street keeps an eye on the property and sends his sons over to help with heavy lifting. The small footprint means less time cleaning and lower heating bills; the urban setting means being able to walk everywhere. And the sight of my little brown cottage, set amongst the taller houses around it, always makes me feel like I’m coming home to someplace cozy, my own log cabin in the urban woods.

All this would have seemed so foreign more than a year ago when, following job interviews in Providence, I would sit up late in the quiet house in the quiet little town I lived in, succumbing to obsessive search binges on riliving.com. I was trying to balance decent public schools with the length of the commute to my new workplace, and there didn’t seem to be much in Rhode Island I could afford. But although it left me bleary-eyed and anxious, I couldn’t stop. When I’d find myself mooning over multi-million-dollar estates in Jamestown, I’d know it was time to turn off the computer and go to bed.

Back then, we were near the beginning of a cycle that has loaded the state’s real estate inventory with foreclosed homes. My house was part of that. While I was filling out job applications in the fall of 2007, the bank was in the process of claiming it from the previous owner. He’d purchased it back in the heady days of 2005, then refinanced and spent a couple of years remodeling, doing most of the work himself. He put it back on the market for double what he’d paid, more than $300,000, but there were no takers. He moved out and rented it, hoping to ride out the downturn. Then disaster struck: After a few months, the family that moved in couldn’t make rent. By the time he evicted them, he was behind on his payments. It was too late.

By early 2008, when I accepted a job offer, the house was empty and cold. Way too cold. Something stupid had happened: The heat had been turned off, but no one had winterized the place. Throughout Providence, copper was being stolen from vacant buildings. But in this one, the copper pipes simply froze.

As the weather thawed that year, Providence Water Company noticed an anomaly. The house was consuming huge amounts of water through pipes that had burst in more than a dozen places. By the time it got turned off, the deluge had brought down large portions of the ceilings. The wooden floors had warped, and most of the light fixtures had shorted out. Mold had started to grow.

The first time I spotted it on riliving.com, it was out of my price range despite the mess (and described as a “great value for investor willing to do work”). It was also listed as being in a fairly undesirable neighborhood. I didn’t bother following up.

As the real estate market, like the spring weather, started to go south, I called a realtor who’d been recommended to me, Gemma Fabris at Coldwell Banker. She talked about long-term investments, neighborhoods with staying power and finding an environment that would suit me (apparently the East Greenwich suburbs probably wouldn’t), then sent me out to scope my first houses, all on or near Providence’s East Side. At first blush, a cute little cottage in Oak Hill was the easy winner. But when I looked at the numbers more closely, I realized it was a stretch. My mortgage broker said I would qualify for the loan, but the more I thought about the monthly payments, the more uncomfortable I became.

Another house, a two-family close by, was nearly the same price but seemed like a better deal given the potential for ren-tal income. But the thought of the upkeep had me worried, and it needed a little work. Not as much as the three-family down in Fox Point that had clearly been used as a slum student rental. A big old house a little too close to the highway, it featured stand-alone gas heaters bolted to the floor in one room of each apartment, ancient windows and dramatic paint colors that didn’t make up for the cold drafts. Only with a large pool of students to draw from could a landlord have gotten away with it. It would need a good $100,000 in work, and tenants willing to rent parking spaces elsewhere. No way.

At a small cottage in Mount Pleasant, dogs in the yard next door barked incessantly, not surprising given that no one seemed to pick up after them. Another house nearby had a cute backyard but a cramped, outdated kitchen and very little natural light. Nothing was less than $200,000, my upper limit.

Then the price on a tiny three-bedroom dropped for the second time in a month, and my realtor met me there to look inside. When we entered, I realized it was the place I’d seen on the Internet a few months before; the location was for some reason listed wrongly. In fact, it was in a fairly nice neighborhood, not overly pretty but convenient and lively. The floor was covered in ceiling plaster and there was a pervasive smell of mildew, but it was bright and sunny with new windows, a new furnace, and a newly remodeled kitchen with funky leopard-like marble counters.

There was even a small garden. A little research showed the local elementary school was one of the best in the city. A chat with the city councilor assured me that the crime rate was low and the area blossoming. The key was in a lock box, so we didn’t have to alert the bank’s realtor every time we visited. At Gemma’s advice, I met with a series of contractors who gave me estimates of how much it would cost to replace the pipes and put the ceilings back up. Adding that sum to the purchase price, it would come in slightly under my limit.

Because the house would be bought as-is, with no seller disclosure and nothing contingent on inspection, I had to be sure before I made an offer. Once I knew I was serious enough to pay the fee out of pocket, I got a house inspector there. There were no big surprises, apart from the couple who were also prospective buyers, who came by to see the house while we were there. I put in an offer that day.

Obviously the bank was keen to unload the property. But the price seemed fair and, after Gemma pulled the house’s financial history, she guessed it was already below what the bank had been owed on it. At her advice, I offered 10 percent below the asking price. The bank countered the next day at 6 percent below. We countered at 9, and after an agonizing week, they countered at 7 percent. I couldn’t stand it anymore; we had a deal.

In the end, I got it for a few thousand below the appraised value of $185,000. The bank had come down by $30,000 in a few months, although still not to the 2005 sale price, which was $165,000. The city of Providence, meanwhile, uses the last statistical revaluation in 2006 to calculate its value, and so I pay taxes on $260,000.

To Gemma’s surprise, the bank didn’t demand I put an extra sum in escrow for repairs. But I was going to need the money anyway, so I arranged to wrap it into the mortgage upfront. The closing was set for three weeks. I got my financials in order and started to explore the neighborhood.

When I got the keys at the closing, I went straight over to give a copy to my new contractor. He started replacing sections of pipe; thirteen little pieces of copper with jagged rips ended up displayed on my kitchen counter. He scraped off the mold, which was starting to die anyway now that the house was drying out, and treated the wood the old-fashioned way, with bleach. (I’m in no way recommending this for homes with chronic mold problems, but it worked for me.) He replaced the ceilings and fixtures. 

But a bad smell lingered, bad enough that I was reluctant to let the family sleep there. I was convinced there must be more mold, but sample holes in the walls said I was wrong. What was going on? After weeks of uncertainty, my builder found the answer. Behind a wall in the basement was a second sewer stack, and it wasn’t capped. Sewer fumes had been rising into the house for, he guessed, several decades. No wonder the previous owner had trouble flipping it.

Months later, on a warm fall night, I was carrying Ikea boxes into the house when a car slowed down on the street. “Hey,” yelled the driver, “did you just buy this house in foreclosure?” “Yes,” I yelled back. “I used to own it,” he cried.

I invited him in, along with his son, who was ten years old. The two of them wandered around the house amidst the chaos of half-assembled furniture. “The stairs used to be over there, you know,” he told me. “And there used to be four different rooms on this floor, before I knocked down the walls. I’ll bring you the pictures.”

He seemed completely unfazed. Deciding not to mention the bills from a lawyer’s office that came for him on a weekly basis, I offered something to drink. He cheerfully refused. Then, “Hey dad,” said his son. “Remember how you had the train set on the table over here at Christmas?”

They were standing in my kitchen. I couldn’t think of anything to say. The boy looked sad and, for a second, his father did too. Then he hustled his son out the door, leaving his phone number and explaining that dinner was waiting.

And so I came face to face with the fact that I had profited from someone else’s misfortune. Foreclosures are going on at unprecedented levels in every community in the state and across the country. And when you buy one of these properties—and, of course, someone’s going to buy them—on some level you have to acknowledge the carnage. You may not have made it happen, but someone’s life collapsed for you to get your deal.

It remains to be seen how much of a deal I really did get. At first, as for many first-time buyers, the falling home prices were a relief. They were the reason I could consider a small house instead of a condo, and a nicer area than I’d at first thought possible. Now that I’ve bought, they’re scary. Perhaps I should have waited. I might have got the house, or something better, for less money at a lower rate. I’d have smaller mortgage payments—which seems particularly attractive after a recent company-wide pay cut at work. Perhaps I shouldn’t have bought at all; the job losses all around often make a purchase this large seem like an act of reckless imprudence. If the layoffs strike me, the house may once more be in foreclosure.

I’m doing what I can. I thought about refinancing to take advantage of lower rates (4.8 percent!), but my mortgage broker warned that the sinking market means I’ve probably lost too much equity to qualify, and could end up paying the $300 appraisal fee for nothing. That just happened to a friend, and I can see from how she feels that it’s a piece of news I could do without. But I’m hopeful that I’ll win my tax assessment appeal, which could save me a couple thousand a year. I’m still waiting to hear from the city.

I have no real way of knowing whether buying was a good decision. The direction that the economy takes is out of my control. So is the trajectory of my neighborhood, which could continue to gentrify or could, like so many areas of Providence, remain perpetually on the cusp.

What I do know is that I still love the house, love the street, love the school, love the fact that I’m not renting so I can paint the walls lime green and plant a garden. I invested, not just in a house, but in my family’s life. I suppose there may come a time when we outgrow the place, when its quirks begin to feel like restrictions. But for now, we found nice light, an extra bedroom, plenty of parking, a safe harbor. For that, we’re all grateful.

• House Hunting in a Market Like No Other